Page 177 - Profiles's Unit Trusts & Collective Investments - September 2024

Fund Manager Interviews

Stock exchanges are wonderful high-quality businesses and the Mexican bourse, Bolsa
Mexicana, is no exception – the company earns two thirds of its revenue from monopoly
post-trade businesses, with another 20% coming from faster-growing information services.
At a valuation of seven time operating earnings, it is also one of the cheapest stock exchanges
globally, and generates 12% of its enterprise value in free cash, which it is returning to
shareholders via dividends and an ongoing buyback programme. Mexico has recently enacted
significant pension reforms to boost domestic retirement savings which, in combination with
a positive macro-outlook for the country as the beneficiary of the global re-orientation of
supply chains, bodes very well for the Mexican capital markets longer term. Furthermore, for
the 14th largest economy globally, Mexico massively under indexes in terms of its market
cap/GDP, leaving significant room for growth.

Stylo Global Bond Prescient Fund of Funds

Sector: Global–Interest Bearing–Variable Term
Portfolio manager: David Shochot
Benchmark: 80% Barclays Global Aggregate Bonds (USD); 15% Barclays Capital US TIPS; 4%
Barclays Short Term Float Adjusted; 1% Cash
Returns to investors 1 year 3 years
Stylo Global Bond Prescient Fund of Funds -2.30% 3.45%
Sector Average -3.52% 1.64%
Inflation (CPI) 5.10% 5.96%
ProfileData performance stats to 30 June 2024: CAGR with dividends reinvested

Please describe your investment universe.
The fund invests mainly in offshore exchange traded funds (ETFs). The primary fund objective
is to get exposure to global credit (sovereign & corporate, fixed & inflation-protected) that is well
diversified in a cost-effective and efficient manner.
Please comment on your investment year (July 2023 – June 2024) from a fund manager’s
point of view.
Contrary to expectations, the global bond environment deteriorated slightly over the period.
Inflation fell sharply in the first half of 2023, but progress stalled thereafter; although headline
inflation continued to moderate, especially in Europe, high wage growth, resilient labour markets
and still-elevated services inflation stopped the main central banks from cutting. The growing US
debt level also became a point of concern, while the prospect of recession in the US receded. So,
whereas the market in January 2024 had expected the Fed to make six or seven 25bp cuts during
the year, by June, this was down to just two cuts. In consequences, global bond prices tended to
weaken over the reporting period, while the running yield was offset by the rand, which gained
3.6% against the US dollar.
Against this back drop, our fund performance for the year was -2.3%. Over longer-term
periods, three years, five years and since inception, we delivered an above-average return due to
our more diversified exposure (we had higher exposure to inflation-protected bonds and
short-duration bonds than our peers and these subsets of the credit market fared better than the
aggregate). We remain convinced that our broad exposure coupled with our low-cost advantage
will continue to benefit our unitholders.
In terms of risk management, what methods or strategies are you able to use to protect your
clients’ investments?
We believe our primary tool for risk management is diversification. Our ETF strategy gives us a
well-diversified exposure to credit, duration and bond type. 90% to 95% of our credit exposure is
investment grade. We have lower credit risk and lower volatility than our peer average.

Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts 175